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2002 (10) TMI 78 - HC - Income TaxWhether Tribunal was right in law in holding that the excise duty collection was a trading receipt in the year of receipt and hence excise duty refund of Rs. 1, 45, 752 was liable to tax in the hands of the assessee under section 41(1) of the Income-tax Act 1961? - we are of the view that the amount which was collected by the assessee against the excise duty or the sales tax was on account of business and as such is a trading on the business receipt. Thus it will fall in the income of the assessee. We are not impressed with the contention of Mr. Ranka that the amount has been credited in a separate account. Simply a separate account would not change the character of the initial collection. The amount after collection has neither been refunded to the customers nor paid to the Government. Thus it is a case of unlawful enrichment. If such refund is not considered as income the assessee will be benefited twice. Thus the Tribunal was justified in setting aside the order of the Commissioner of Income-tax (Appeals) and restoring the order of the assessing authority upholding the addition of Rs 1, 45, 752.
Issues Involved:
1. Whether the excise duty collection was a trading receipt in the year of receipt. 2. Whether the excise duty refund of Rs. 1,45,752 was liable to tax under section 41(1) of the Income-tax Act, 1961. Detailed Analysis: 1. Excise Duty Collection as Trading Receipt: The Tribunal held that the excise duty collected from customers was embedded in the sale price and should be credited to the profit and loss account. The Tribunal found that the assessee credited the excise collected to the Central Excise Duty deposit account, and when paid to the Excise Department, it was debited from the same account. The Tribunal rejected the assessee's contention that it had never claimed it as an expenditure in the past, concluding that the effect on the profit and loss remained the same irrespective of the accounting entries. Consequently, the Tribunal determined that excise collection is a trading receipt and excise duty payable is a trading liability. 2. Taxability of Excise Duty Refund under Section 41(1): The Tribunal concluded that the refund received by the assessee as a remission of such liability would attract the provisions of section 41(1). The Tribunal anticipated situations where customers may not claim refunds, leading to the excise duty refund escaping tax if the assessee's plea was accepted. The Tribunal's view was supported by precedents such as the Supreme Court decisions in Gursahai Saigal v. CIT, Chowringhee Sales Bureau P. Ltd. v. CIT, and Sinclair Murry and Co. P. Ltd. v. CIT, which held that amounts collected as sales tax or excise duty form part of trading receipts and must be included in total income, with deductions allowed when paid to the authorities or refunded to customers. Relevant Precedents and Legal Provisions: - Section 41(1) of the Income-tax Act: This section enacts adjustment provisions where the Revenue takes back what it has allowed if the assessee recoups something for which an allowance had been made. It specifies that the recoupment or benefit must be in respect of the loss, expenditure, or trading liability mentioned in the first part of sub-section (1). - Case Law: The Tribunal's decision was based on the Gujarat High Court's judgment in Motilal Ambaidas v. CIT, which was approved by the Full Bench in CIT v. Bharat Iron and Steel Industries. The Supreme Court decisions in Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murry and Co. P. Ltd. v. CIT were also pivotal, establishing that amounts collected as sales tax or excise duty are trading receipts. Conclusion: The court concluded that the amount collected by the assessee against the excise duty or sales tax was on account of business and thus a trading receipt. The court was not persuaded by the assessee's argument that the amount was credited to a separate account, as this did not change the nature of the initial collection. The court held that since the amount was neither refunded to customers nor paid to the Government, it constituted unlawful enrichment. Consequently, the Tribunal was justified in setting aside the Commissioner of Income-tax (Appeals) order and restoring the assessing authority's order, upholding the addition of Rs. 1,45,752 as income. Final Judgment: The reference was answered in favor of the Revenue and against the assessee.
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